September 24, 2015

The Honorable Thomas E. Perez

Secretary

U.S. Department of Labor

200 Constitution Avenue NW

Washington, DC 20210

Re: Definition of the Term “Fiduciary” Conflict of Interest Rule (RIN 1210-AB32)

Proposed Best Interest Contract Exemption (ZRIN 1210-ZA25)

Dear Secretary Perez,

I am writing to express my support for the Department of Labor’s work to update and expand the 

definition of fiduciary for employer and individual retirement plans and to highlight several key 

provisions that I believe would be especially helpful to workers and retirees if included in a final rule. 

Planning for retirement is hard, and Congress has made it harder over the years by shifting more of 

the burden and responsibility to the worker. I think that shift is fundamentally a mistake, but I 

commend the Department for adapting to the world we live in. The only way our approach to 

retirement planning can succeed is with strong guidance from trained professionals who have the 

expertise to evaluate a complex investment world and who can cultivate respect and trust to 

overcome all of the natural human impulses against saving for the future. This rule’s focus on 

improving the quality of advice is absolutely necessary, and a well-written rule should also enhance 

the trust between investors and advisers. 

I want to thank you and your team for the outreach that you have done to me and to my office as 

you have gone through this process. I also want to commend you on the extended comment period, 

the public hearing, and the willingness to engage with all interested parties during the consideration 

of this proposal. I have had dozens and dozens of meetings with constituents on this issue over the 

last several months, and almost every one of them was followed or preceded by a meeting with your 

experts working to craft this rule. A transformative regulation like this deserves intense engagement, 

and I commend you for recognizing that. 

I have also been struck by the earnestness of several people I have met with on this issue over the 

last two months. I want to encourage you to take close notice of several of their points and 

proposals on how best to achieve the Department’s (and society’s) goals for retirement savings:

Encouraging Retirement Plans at Small Employers

The Department notes that the strong majority of retirement assets are either in employersponsored plans or are the result of rollover from an employer-sponsored plan, and research shows 

strong correlation between an employer offering a plan and higher savings rates by employees. In 

addition to the clear benefit of retirement plans in encouraging savings, I have noted that the 

Department has offered employer-sponsored plans, with the scale and cross-subsidization they 

bring, as an effective vehicle for solving the problem of how to provide advice to workers with small 

account balances. 
For all of these reasons, I think we should have a clear goal of encouraging employers to sponsor 

retirement plans, and we should be deeply concerned that only a quarter of small businesses (those 

with fewer than 25 employees) offer plans. In light of this goal, I am worried about a gap left in the 

proposed rule for employers with under 100 employees. The primary exception for larger employer 

plans (the seller’s exception) is not available to businesses with under 100 employees, and the 

primary exception for individuals (the best-interest contract exception) is not available for employeedirected plans. The final rule must close this gap. I believe that the Department has identified simple 

fixes that would leave no gaps in the rule, and I encourage the Department to address this issue and 

ensure that small employers have ready access to advice.

It will take more than tailoring the rule to encourage small businesses to set up plans. Setting up an 

employer plan is a costly, complex and burdensome undertaking, and the Department notes that 

small business owners are experts in providing the goods and services they sell, not in financial 

planning. The Department should take affirmative steps to encourage markets that allow small 

businesses to set up plans at a minimum of time and expense. My state of Washington recently 

enacted the Small Business Retirement Marketplace, a multiple employer plan (MEP) for small 

businesses to access in setting up retirement plans. I am optimistic that this initiative will result in 

lower costs through economies of scale and better results through standardization around the best 

approaches. I believe MEPs, both state-sponsored and private, could be a meaningful improvement 

for small business employees, and I encourage the Department to speed its forthcoming rulemaking 

on MEPs and to craft the fiduciary relationships in the final conflict-of-interest rule with an eye 

toward encouraging the broader implementation of MEPs. 

Encourage Advice and Education

As I noted, I fear that shifting the responsibility for retirement planning and saving on to the worker 

has proven to be an unwise policy change. I have known brilliant pension fund managers who have 

enriched the retirements of hundreds of thousands, and I have seen that investing and retirement 

planning take time, education, skill and talent. But as we have shifted the burden from pension funds 

to workers, we have not provided workers with the education or freed up the time for them to do it 

right. We are setting people up to fail and this has led to what many have called a retirement savings 

crisis. I know that you share this concern, and I appreciate the work that the Department has done 

in implementing automatic retirement plan enrollment and encouraging better default investment 

alternatives. Still, there is much work left to be done if we want most workers reach retirement with 

adequate savings. 

Changing the default retirement settings has been an effective way of minimizing the number of 

decisions required to start saving for retirement, but it only goes so far. All workers in a defined 

contribution framework will eventually need help confronting difficult decisions, making good 

choices and reviewing progress toward goals as they age. This can only be done with the assistance 

of financial professionals.

I support the Department’s proposal to preserve an education exception first outlined in 1996. I 

believe that vastly more education is needed to help workers tackle complex retirement decisions, 

and I believe it is especially important that the education exception cover personalized retirement 

adequacy models. Asset adequacy calculators are critical in reminding workers of the need to 

monitor and revisit their investments. They challenge the same status quo bias that the Department 
responded to in encouraging default enrollment and investment options in 2006. I hope the 

Department preserves a strong education exception encouraging frequent education utilizing 

personalized measures wherever available under the interactive material provision. 

Even with the benefit of education, it will never be realistic for the typical worker in a defined 

contribution plan or IRA to carry out on their own all of the roles of the employer and pension fund 

manager in a defined benefit plan. Workers will have to depend on outside advisers to help set 

retirement goals and to choose the savings targets and investment allocation to reach that goal. Even 

after the initial plan is set, academic research shows most investors would also benefit from 

someone to discourage reacting to market volatility. I am skeptical that these roles can be filled 

completely by so-called “robo advisers.” I think the role of person-to-person interaction is vital. 

Workers need advisers whom they trust and respect and can empower to carry out a plan that will 

deliver the worker retirement security. 

The fiduciary duty ought to significantly increase the trust between advisers and clients once the 

relationship is established, but I take seriously the concerns that the proposed timing of the BestInterest Contract (BIC) may block the relationship from being consummated in the first place. I 

encourage you to look carefully at how to craft the paperwork and timing of the BIC so as to 

maximize the opportunity for workers to interact and benefit from advisers legally bound to act in 

the client’s best interest. 

Preserve and Promote Options for Guaranteed Lifetime Income

Pensions are superior retirement plans not only in putting investment decisions in the hands of 

financial professionals but also in providing a monthly income stream rather than accumulating a 

lump sum. I have always believed that it is far easier for the typical worker to envision their 

retirement needs in terms of monthly income and expenses than in terms of the total cost over the 

years and the total assets necessary to cover that. In addition, I hear from my constituents that 

outliving their retirement assets is among their greatest fears for old age. For all of these reasons, I 

think we should work to promote products in worker-directed retirement plans that replicate 

pensions’ promise of guaranteed lifetime income.

I appreciate the thoughtful discussion in the proposal to provide a supplemental exemption for 

annuities in Section VI of the BIC and to preserve the proposed transaction exemption 84-24 for 

annuity sales. I know that the Department recognizes the importance of guaranteed lifetime income, 

and I think the proposal’s requests for comment show a commitment to getting the rule right, but it 

has caused understandable confusion about what the final rule will look like. I urge you to finalize 

the rule with an eye toward preserving the opportunity for workers to replicate a pension-like 

retirement in defined contribution plans and IRAs. 

Encourage Good Actors 

One way Washingtonians buy annuities is through fraternal benefit societies. Because of their 

structure as non-profit member organizations similar to cooperatives, fraternals avoid many of the 

conflicts of interest between client and adviser that this rule is designed to address. With other 

consumer financial protections, regulators have modified regulations for certain situations where the 

provider and customer’s incentives are well aligned, and that may be possible here as well. I know 
you have acknowledged the distinct role played by fraternals in testimony before the House, and I 

encourage you to especially consider how the rule would affect this unique structure. 

I also applaud the Department’s effort to recognize good actors in the industry and consider 

whether to create an exception for the best products. While I have heard strong concerns about the 

wisdom of a low-cost high-quality exception, I do believe that there are companies pioneering better 

approaches to retirement, and the Department is right to take note that the market is improving for 

retirement savers. I was struck by data on how much the mutual fund market has shifted from funds 

with sales fees to no-load mutual funds over the last decade, and that makes me optimistic that 

innovators will keep driving competition that ultimately better serves retirees. 

Going Forward

I have been impressed with the sincerity of the folks I have met with on this issue over the last two 

months. It seems like there are a lot of people working in good faith to get to a better rule and better 

service for workers and retirees. There is a clear consensus that the legal standard for investment 

advice needs to be raised and some current activities need to be prohibited. I hope these suggestions 

help you in tackling the difficult work of identifying exactly where the new line should be drawn and 

which activities should be ended. 

This rule is sweeping in its impact, and even with innovation and good faith effort, implementation 

will take time. In considering the effective date, I urge the Department to consider carefully the 

comments of systems providers and of small advisers on reasonable time frames for 

implementation. I also encourage transition relief like temporary safe harbors for good-faith actors 

and time-limited grandfathers for existing clients. This rule is meant to make things easier on 

workers, and that purpose is served by minimizing disruption during the implementation process. 

Investment advisers are professionals because investing is really difficult. When individuals seek help 

on these sorts of complex questions, they should be able to rely on their advisers to act with loyalty, 

care and prudence, and I thank you for your efforts to ensure that happens. 

Sincerely,

Denny Heck

Member of Congress (WA-10)